The Role of Local Authorities in Housing Supply

Last year, the government commissioned an independent review into the role of local authorities in housing supply. The review investigated ways in which councils could act to support housing delivery both as direct providers and by enabling delivery in the wider market. This briefing examines that report’s findings and its implications for possible future policy.

Background

The government-commissioned independent review into the role of local authorities in housing supply, led by Eastleigh Borough Council leader Keith House and housing charity director Natalie Elphicke, investigated ways in which councils could act to support housing delivery both as direct providers and by enabling delivery in the wider market. It also sought to find policy solutions at a governmental and local authority level to help address unmet housing need.

The review’s findings were published on 27 January (as the Elphicke-House report¹). They set out a vision of local authorities as “housing delivery enablers”, drawing on existing good practice and making a series of recommendations to government and local authorities which might help facilitate increased supply across all types and tenures.

The review had a national focus but also drew on evidence from London, including with regard to the unique affordability challenges in the capital and their impacts on wider economic growth, as well as the unique challenges involved in meeting London’s housing needs.

Overview

The review was required only to consider proposals within the government’s current financial plans. It therefore focused on how local authorities could more effectively use their existing powers and resources, and on the other changes to government policy which could lead to a step change in house building.

The report’s recommendations are intended to help councils to fulfil the role of “housing delivery enabler”, based on the notion that councils should “have primary responsibility to assess and meet the needs of their local population”. The authors envisage that councils “should take responsibility for making development happen in their area, rather than purely

¹ https://www.gov.uk/government/publications/review-into-the-local-authority-role-in-housing-supply assessing housing need and determining applications – to create a culture of house building”.

The recommendations have a particular focus on innovative forms of finance for new housebuilding. Examples given include the provision of housing for market sale to cross-subsidise affordable homes; selling land under deferred consideration arrangements; increasing the affordability of land through splitting its value and selling leasehold while retaining freehold; guarantee purchase agreements and rent guarantee nominations agreements; and the provision of development finance at commercially attractive rates of return.

The review proposes that a new Housing Finance Institute be established with support from the Local Government Association, to support a stronger housing finance market. It also states that councils should explore the establishment of local housing delivery organisations, such as wholly owned companies and joint ventures. Local pension funds are also identified as an important source of new finance for local housebuilding.

While the HRA cap was excluded from the review, the report does note the difficulties currently experienced by local authorities in achieving one-for-one replacement of homes through the right to buy, as envisaged by the government. It therefore proposes that the government “considers flexibilities in any further HRA borrowing programme” within its overall current spending plans to help support right-to-buy replacement.

The review also highlights the opacity of existing rules and guidance in relation to construction of new housing outside of the HRA. It recommends that the government should publicise the freedom available to all councils to build outside the HRA; that the guideline threshold for the number of ‘council’ units that can be built outside the HRA be raised from 50 to 200 units; and that the government should consider ways to simplify the process for obtaining consents and general directions from the secretary of state for building outside the HRA.

Notably, the review points out that local authorities currently have few powers to encourage other public bodies to release disused or vacant land for housing. It proposes that the government should consult on proposals to give councils a new direction power allowing them to dispose of larger sites in their area which are owned by other public bodies. It also proposes that there be greater transparency around public sector land holdings and new guidance around land disposals, and that councils should consider using land covenants, development licences and overage to secure ‘best value’.

While none of the review’s proposals relate specifically to London, the unique context of the capital’s housing market is acknowledged and addressed in the final report. It is noted that the housing shortage in London has been identified as a drag on economic growth, and that 18 of the 19 councils nationwide that were identified as not meeting the housing needs of their population are located in London. It also makes reference to the London Plan and its mismatch between identified housing market demand and identified land availability. However, it also states that “there are substantial resources available to London boroughs, around £1 billion HRA borrowing capacity, high value land, business partners, investors and opportunity to be harnessed as Housing Delivery Enablers”.

**Commentary**

London Councils contributed to the review, offering examples of the ways in which London boroughs were already taking action to support housing delivery in their areas. This included investment using HRA borrowing, the establishment of wholly-owned companies, and support for wider market delivery through housing and planning resources and powers.

The Elphicke-House report is welcome insofar as it recognises the central role that local authorities have in new housing delivery. Many of its policy proposals are also welcome, particularly the proposed role of local authorities in supporting the release of public sector land for housing, and in its advocacy of new financial and investment models to help support the growth of the sector. London Councils has long asked that powers over surplus public land be devolved to London government, and it is critical that the government pursues this recommendation in order to give London the powers it needs to facilitate the use of public land for new housing.

The notion that local authorities should act as “enablers” of housing delivery in conjunction with their direct supply role is one that has already been taken up by many London boroughs. Boroughs are also acting to establish new vehicles for housing delivery such as housing companies and joint ventures, and are acting to support wider market delivery though, for example, the Housing Zones initiative which is set to accelerate development of thousands of new homes across the capital.

However, the report is necessarily constrained by its remit in excluding any measures which may increase overall public borrowing outside of the government’s existing fiscal plans, in particular the lifting of the HRA cap. Keith House stated on publication of the review that he was “convinced it isn’t the issue” given councils’ ability to borrow through the general fund and develop through joint vehicles and wholly owned companies. However, this does not take account of the significantly greater supply potential afforded by investment within the HRA. This is particularly relevant in a London context where the capital’s boroughs own a quarter of all of the nation’s council homes and many individual boroughs are landlords to tens of thousands of properties. This asset base provides a secure revenue stream and, if the cap were lifted, would allow councils to plan for the direct delivery of thousands of new homes in the long term.

The suggestion that future bidding rounds for further HRA borrowing be reviewed in the context of councils’ inability to replace homes with right-to-buy receipts is welcome. Additionally, the government should look again at the rules restricting the use of right to buy receipts and remove unhelpful obstacles to their reinvestment by councils.

The extent to which the government intends to pursue many of the report’s recommendations is unclear. It has issued a response to the report indicating that it will take up recommendations in relation to strengthening guidance on neighbourhood planning and monitoring of schemes to support small builders. It also states that it will explore other recommendations in conjunction with relevant partners. It is likely that any active policy initiatives proposed in the report may only be pursued following the outcome of the general election.